Banks to get £50 billion bailout from the government
The Chancellor Alistair Darling has backed the Bank of England’s decicision to put a sum of £50 billion forward to help stop the credit crisis from damaging UK banks.
Basically the plan will allow banks to swap their risky mortgage debts for secure government bonds to help their liquidity which helps their ability to lend money during this phase of the credit crunch.
The Chancellor said it would make life easier for future borrowers and although the £50 billion funding has been welcomed, he said that the UK financial markets were ‘fundamentally strong’ - Hmmm, I’m sure the banks will be fine with £50 billion of funds to fall back on!
From Monday banks will be able to swap only mortgage debts for government bonds and this will be allowed for a period of 1 year but could be renewed for upto 3 years. The swaps cannot be used to fund new lending and can only apply to mortgage debts from the end of 2007 onwards, there is also no cap on the £50 billion…
But is this a bail out?
The BBC’s business editor Robert Peston said the primary purpose of the scheme was to prevent another Northern Rock
“Or to put it another way, taxpayer support is being provided to minimise the risk of huge future losses for taxpayers from another banking collapse.”
“This is a banking market bail-out of an ambition we haven’t seen in this country since the early 1970’s and possibly longer than that,” he said.
Click here to read Robert Preston’s full blog post…